Office of the Attorney General
State of Texas

Re: Whether the sale of "gin trash" by a gin is exempt under
section 141.002(c)(4) of the Agriculture Code

Dear Dr. Hansen:

You ask us the following two questions:

Can a cotton gin be considered a representative or agent of
the farmer in disposal of the cotton plant by-product 'gin trash'
under the circumstances outlined and thus be exempt from the
economic provisions of the statute under section 141.002(c)(4)?
Does it make any difference if the gin is a cooperative of
farmers?

We conclude that the answer to your first question will depend
upon the facts in each instance. If title to the produce passes
from the farmer to the ginner, the subsection (c)(4) exemption
from the code's registration, labeling and inspection
requirements for commercial agricultural feed, does not follow
the produce in a subsequent sale. If, on the other hand, title
does not pass, the subsection (c)(4) exemption remains operable.
We answer your second question in the affirmative.

Chapter 141 of the Agriculture Code governs the registration,
labeling, and inspection of commercial agricultural feed.
Section 141.002(c) restricts the definition of "commercial feed"
for purposes of this chapter:

(5) an individual mineral substance not mixed with another
material; or

(6) a material furnished by a purchaser for use in a
customer-formula feed that was produced by the purchaser or
acquired by the purchaser from a source other than the person
whose services are engaged in the milling, mixing, or processing
of a customer-formula feed. (Emphasis added).

Under the following submission of facts, you essentially wish
to know under what circumstances the sale of "gin trash" can be
held to be the sale of "a feed product produced and sold by a
farmer."

Farmers produce the cotton plant, harvest it and deliver the
harvested mixture to a cotton gin which, for a charge or fee,
performs a processing service. The cotton mixture is divided
into three basic fractions during the ginning process: lint,
cottonseed, and gin trash.

The lint, which is formed into bales, is carefully identified
such that each farmer is paid exactly according to the amount
generated from his cotton and the grade quality of same. The
ginner may either buy the cotton bales directly from the farmer
on behalf of a third party, act as broker for the farmer, or
merely transfer the bales to a warehouse for storage pending
later sale. The ginner charges a fee for the transport to
warehouse. Upon warehousing, the farmer is issued negotiable
receipts for his cotton.

While the quantity of cottonseed generated from a particular
lot of cotton is recorded, the seed from one lot are co-mingled
in bulk with that of other lots and marketed as such by the gin.
The proceeds from sale of seed extracted from a particular lot of
cotton are prorated directly back to the gin service charges made
to a farmer.

Specific records of the quantity of gin trash from a
particular lot of cotton are not maintained. While the farmer
has the option of receiving the gin trash from his lot of cotton,
the impracticality of handling the gin trash most frequently
results in its disposal by the gin. Any proceeds are applied
against gin operating costs and assist in keeping ginner service
costs down to a minimum level. In many cases the cotton gin is a
cooperative of farmers who jointly sell the gin trash to lower
their costs of production.

Gin trash is primarily being sold to cattle feedlot
operations to be used in finished rations for animals owned by
their clientele.

Gin trash is a low density nutrient which is not utilized as
a primary source of protein or fat in an animal ration as are
most feed ingredients, but more for its 'bulk' or fiber content.
In this respect gin trash is similar to unadulterated cottonseed
hulls, peanut hulls and rice hulls, which are currently exempted
from the act under section 141.002(c)(4).

The Ginners Association maintains that cotton gins act on
behalf of the farmer, offering a service which is an extension of
the harvesting process. It is further maintained that a farmer
relinquishes ownership only when the disposition of lint, seed
and gin trash is completed. The gin management acts for the
grower in delivering gin trash to the point of its disposal,
whether that disposal be to channels of the feed trade, in
distribution across farmland, to a landfill, or otherwise. This
disposal service is provided as part and parcel of the ginning
service and in many cases may provide a return to the farmers in
lower fees or charges.

The guiding principle of statutory construction is to ascertain
legislative intent. Jessen Associates, Inc. v. Bullock, 531
S.W.2d 593 (Tex.1975). From reading chapter 141 as a whole, it
is clear that the legislature intended to set up a comprehensive
scheme for the registration, labeling, and inspection of
commercial agricultural feed. Section 141.002 sets forth certain
specific exceptions to such requirements. The subsection (c)(4)
exemption applies only to "a feed product produced and sold by a
farmer." (Emphasis added). It is clear that the exemption is
intended to reach a farmer only when he sells his product; he is
then removed from the ambit of the registration, labeling, and
inspection requirements. Once ownership of the gin trash passes
from the farmer, however, the subsection (c)(4) exemption ceases
to operate. It is unclear in your letter whether, and if so
when, such title passes. The determination of your first
question will finally depend on the facts involved in each
instance. If title passes from the farmer to the ginner, then
clearly the subsection (c)(4) exemption does not extend to the
ginner when there is a subsequent sale by the ginner. The ginner
would perforce be required to comply with the provisions of
chapter 141. On the other hand, if the ginner acts as a broker
pursuant to some form of agency contract or accepts the cotton
under some form of consignment agreement, the subsection (c)(4)
exemption may still be operable.

You inform us that in many instances, a gin is operated as a
cooperative of farmers. Therefore, you further ask whether the
subsection (c)(4) exemption would extend to gin trash processed
at a gin so operated. In section 51.004 of the Agriculture Code,
a farmers' cooperative society is empowered to "act as an agent
for its members in selling the members' agricultural
products...." (Emphasis added). Agric. Code s 51.004(a)(3). In
such an instance, courts will look to the intention of the
parties to the contract at issue and examine the contract as a
whole rather than rely on the mere form of the contract. In
Texas Certified Cottonseed Breeders' Ass'n v. Aldridge, 61 S.W.2d
79 (Tex.1933), the Texas Supreme Court held that a marketing
contract by which a cotton producer delivered cottonseed for
resale to a co-operative marketing association did not effect an
absolute sale, even though the agreement specifically provided
that the association "buys" and the producer "sells and agrees to
deliver" the produce. The court declared:

The members of the association, in order to promote their
welfare, delivered their seed to the association. They
constituted the association their agent with broad and exclusive
powers to handle and sell their commodity. This was necessary to
accomplish the very purposes for which it was created. It being
the clear intention of the members to create a true co-operative
marketing association, under the powers enumerated by law and by
the contracts, to perform certain services exclusively for its
members, and to hold in the face of this intention that the
delivery of the seed to the association was an absolute sale
would destroy it as a co-operative marketing association. The
members have conferred on this association, as their selling
agent, such title to the cottonseed with plenary powers to handle
and dispose of same, but the association handles the proceeds
thereof for the benefit of itself and its members. (Emphasis
added).

Id. at 83.

In another context, this office has previously determined that
farm products held by a farm co-operative remain in the hands of
the producer for purposes of article VIII, section 19 of the
Texas Constitution which exempts from ad valorem taxation "[f]arm
products ... in the hands of the producer...." Attorney General
Opinions
H-938 (1977);
M-632 (1970);
0-5404 (1943).
The opinions concluded that farm products held by a co-operative
remained in the hands of the producer because the producers, in
effect, constituted the co- operative as their agent. No
absolute title to such products passed from the farmers to other
parties. Analogously, we conclude that "gin trash" held by a gin
operated as a farmers' co-operative may still receive the benefit
of the subsection (c)(4) exemption because title to such product
remains with the farmer with the co-operative acting merely as
the producers' agent.

SUMMARY

"Gin trash" in the control of a cotton ginner falls within
the ambit of the section 141.002(c)(4) Agriculture Code exemption
from registration, labeling, and inspection requirements for
commercial agricultural feed only if title to such feed product
has not passed from the farmer to another party. "Gin trash" in
the control of a cotton ginner which is operated as a farmers'
co- operative does fall within the exemption provisions.